Aviva Investors, one of the largest managers of real estate in the UK and Europe, today argued that returns in the real estate market this year will come from focusing on quality assets that provide secure income streams and are low in risk. While prime real estate assets are the main focus for the year investors would also be prudent to keep an eye on secondary real estate.
- Global economic prospects weaken but real estate remains resilient
- Preference for defensive assets with strong income-producing qualities
Aviva Investors, one of the largest managers of real estate in the UK and Europe, today argued that returns in the real estate market this year will come from focusing on quality assets that provide secure income streams and are low in risk. While prime real estate assets are the main focus for the year investors would also be prudent to keep an eye on secondary real estate.
Ian Womack, global chief executive for Real Estate at Aviva Investors, said: “Last year, against a difficult macro backdrop a number of real estate markets delivered robust returns to investors, with the UK in particular returning 8.1%1 across the year. While some challenges remain for 2012, on the whole we expect the relatively low risk qualities of real estate (compared to other risk assets) will bring resilience to the sector should investor sentiment deteriorate."
UK
“In the UK, continued risk aversion means that the low risk qualities of prime real estate remain appealing to many investors. Supported by favourable relative pricing and potentially further quantitative easing, we believe high quality assets with long leases will also prove resilient. Over the medium term, the income producing qualities of real estate should provide respectable returns.
“Although we think prime real estate is the more preferable asset in today’s markets, over the next year or so pricing adjustments are also likely to create opportunities for secondary real estate.”
Europe
“In Europe, our forecasts have been revised downwards due to deteriorating income growth prospects and the fact that policymakers are yet to deliver an effective response to the sovereign debt crisis. Against this backdrop, some markets will perform better than others.
“The appeal of safe haven assets in Europe will typically see investors look to the most liquid markets offering strong, income secure assets; such as, German, France, Benelux and the Nordics. However, peripheral markets may offer cyclical opportunities for investors, especially given the possibility of very strong policy responses.”
Asia Pacific
“While there is a strong possibility that Asia Pacific will experience slower economic growth in 2012, most countries will benefit from having low levels of indebtedness and effective policy tools at their disposal should conditions continue to deteriorate.
“We forecast strong returns in Australia’s retail, office and logistics sectors. Tokyo also offers a compelling case for investment as it has reached a good point in the economic cycle. Hong Kong and Singapore’s exposure to the global economy means they may experience bouts of weakening sentiment. “
US
“Looking at the US, occupier market data suggests we reached the start of a recovery phase in mid 2011 with vacancy rates beginning to decline. So far, the recovery has been largely confined to prime real estate and this market polarisation will continue this year. Income risks and the potential for debt related distress are important factors that investors should remain aware of. However, on the whole the US commercial real estate market offers investors a wide range of opportunities.”
–ends–
1 IPD UK Monthly Property Index, 31 December 2011
Aviva Investors manages over £24 billion in real estate assets globally (as at 30 June 2011).
For more information contact:
Kaidee Sibborn
Corporate Affairs
+44 (0)20 7809 8759
Notes to editors:
The information and opinions contained in this document are for use by the financial press and media only. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact or advice nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.
Aviva Investors
Aviva Investors is the global asset management business of Aviva plc. The business delivers investment management solutions, services and client-driven performance to clients worldwide. Aviva Investors operates in 16 countries in Asia Pacific, Europe, North America and the United Kingdom with assets under management of £269 billion at 30 June 2011.
Aviva plc
Aviva is a leading provider of life and pension products in Europe (including the UK) with substantial positions in other markets around the world, making it the world's sixth largest insurance group based on gross worldwide premiums at 31 December 2010.
Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £47.1 billion and funds under management of £402 billion at 31 December 2010.
* Based on 2010 published life and pensions PVNBP on an MCEV basis, total investment sales and general insurance and health net written premiums, including share of associates' premiums.